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Friday, 30 November 2012

On
a forested plain in Alberta next month, massive mechanical shovels
will start scooping tons of oil-rich sands and loading them into
three-story-tall dump trucks.

The
trucks will haul the sands to the $11 billion Kearl
oil-sands-processing facility, which will sift out the prized
Canadian crude and provide Exxon Mobil Corp. XOM +0.02% with up to
170,000 barrels of oil a day for decades to come.

The
world's largest publicly traded oil company by market capitalization
is counting on Kearl and 20 other new projects to jump-start its
slumping oil and gas output, which plummeted to three-year lows in
its most recent quarter.

Exxon
shares have gained 3.9% so far this year, though they are little
changed from where they stood five years ago. The shares closed at
$88.10 on Wednesday on the New York Stock Exchange.

Some
analysts are skeptical the spate of projects—from Indonesia and
Papua New Guinea to the deep waters off West Africa—will begin by
2014 as Exxon predicts and deliver the infusion of oil and gas it
anticipates. Exxon estimates the projects could increase its daily
oil production by up to 880,000 barrels, or about 22% of its current
daily output.

"Delays
are the rule, not the exception, in this industry," said Fadel
Gheit, an analyst with Oppenheimer & Co.

Analysts
with UBS expect Exxon's 2012 production to be down 5.7% for the year,
compared with an expected 2.9% drop for Chevron Corp., CVX +0.20% a
2.7% decline for BP BP.LN 0.00% PLC and a 2.2% increase for Royal
Dutch-Shell.

Increasing
oil output has become daunting for energy companies such as Exxon,
because big oil fields in easy to reach locations have gotten scarce,
and government-controlled oil companies from countries such as Russia
and China have become more aggressive, spending freely to outbid
Western firms for the rights to the best projects.

There
are other obstacles to production growth, including depletion of
existing oil fields, which generally lose 5% to 7% of their output
per year, according to analysts.

Lysle
Brinker, director of energy-equity research for IHS-CERA, said Exxon
has a good record for completing major projects close to budget and
schedule. "They'd be the first to admit it doesn't always go
smoothly, but Exxon has a better reputation than most for hitting its
deadlines," Mr. Brinker said.

Exxon
declined to discuss the start-up risks associated with specific
projects. In discussions with analysts and investors, its executives
have stressed they aren't looking to increase production overnight or
at the expense of profitability, but bet on big projects that will
provide significant profits for the long haul.

Exxon's
annual spending on exploration and production projects has increased
sharply: It now plans to spend around $37 billion per year through
2016, up from less than $20 billion in 2009.

Off
the coast of Angola, Exxon is expecting additional production from an
expansion of its Kizomba project, a series of deep-water oil wells
that were among the first for that West African nation. With a 40%
stake, Exxon will get 40,000 barrels per day of the targeted output.

In
Indonesia, an offshore project known as Banyu Urip is expected to
produce about 165,000 barrels per day by the end of 2014, with
roughly 75,000 barrels for Exxon, a 45% owner.

In
Papua New Guinea, meanwhile, a liquefied-natural-gas project is
expected to export up to 940,000 cubic feet of gas—equivalent to
166,000 barrels of oil—to China and other Asian markets by 2014.

But
the venture is proving more costly than anticipated: Exxon increased
the price tag on the project by 21% to $19 billion this month, citing
changes in foreign-exchange rates and delays from work stoppages.

The
brunt of its projected production growth through 2014, 37%, comes
from Canadian oil-sands projects such as Kearl, which has been in the
works since 2009.

But
the oil-sands projects are in remote locations that require many
workers and billions of dollars in capital. They are also hamstrung
in reaching customers outside of Canada due to limited pipeline
capacity.

The
700,000-barrel-per-day Keystone XL pipeline, which will carry
Canadian crude to Gulf coast refiners, is seen as one way around
those limitations, but the project has faced stiff opposition from
environmentalists.

Final
approval of the project was delayed by President Barack Obama because
of environmental concerns, but with the election over he is expected
by many observers to give final approval. That approval may come with
additional environmental requirements, however, which could add costs
to and slow development of future oil-sands pipelines.

Even
if all of the new projects come to pass, they wouldn't make up for
Exxon's possible exit from a burgeoning project in southern Iraq that
was expected to produce up to 1.6 million barrels a day for the
company by 2016.

Iraqi
officials said Exxon recently notified them that it plans to sell its
60% operating stake in the West Qurna project to another firm. The
Iraqi government has said Exxon must choose between operating in
southern Iraq or in semiautonomous Kurdistan in the north, where
Exxon last year signed an agreement to explore for oil in defiance of
Baghdad. Exxon has declined to comment on its plans in southern Iraq.

Still,
despite the company's challenges, some analysts are loath to bet
against Exxon. They estimate that investments such as the Kearl
project, and the company's recent $1.6 billion purchase of Denbury
Resources Inc.'s DNR +0.46% holdings in the Bakken Shale oil field in
and around North Dakota, will help the company rebound.

Next
year "should look better," for Exxon, said Raymond James &
Assoc. analyst Pavel Molchanov, who expects the company's output will
grow 3%.

As
China readies for the water-intensive process of hydraulic
fracturing, or fracking, to tap into massive reserves of shale
natural gas, concerns are rising regarding the country's already
limited water supply.

China
has 25.08 trillion cubic meters of exploitable onshore shale-gas
reserves, China's Ministry of Land Resources has said. But most of
that gas lies in areas plagued by water shortages, says a report in
China's Caixin newspaper.

To
extract natural gas from underground formations, 10 times more water
is needed compared to pumping equivalent amounts of oil and gas from
conventional wells, said Bao Shujing, deputy director of Sinopec
Petroleum Exploration and Development Research Institute's
Department of Non-Conventional Energy Technology Support.

As
part of its current five-year economic plan, China aims to produce
6.5 billion cubic meters of shale gas a year by the end of 2015.

To
reach that production goal, 1,380 wells need to be drilled,
requiring up to 13.8 million cubic meters of water, an industry
expert told Caixin. By contrast, China's entire industrial sector
uses about 35 million cubic meters of water annually.

The
World Bank says China's per capita water availability is only
one-quarter of the world average.

This
water deficit is a key issue for the development of China's shale
reserves says Lin Boqiang, an energy expert at Xiamen University.

"I
think the reserves estimates aren't realistic, because without water
how can you develop them?" he recently told the Financial
Times.

Contamination
of underground aquifers is also a risk with fracking.

Caixin
reported an unnamed source at China's Geological Exploration
Department as saying that as shale development increases, the
Chinese government will likely introduce specific, shale gas
drilling policies designed to protect the environment, particularly
groundwater.

Yet
an industry source said those policies are unlikely to be legally
binding.

Even
ahead of China's shale development, the Ministry of Environmental
Protection says that groundwater in 57 percent of the country's 660
cities is significantly polluted.

Environmentalists
have urged the Chinese government to put in place environmental
standards for the country's shale gas sector.

Yang
Fuqiang, a Beijing adviser on environment and climate change affairs
for the Natural Resources Defense Council, warns that such rules to
protect the environment are needed now before drilling accelerates.

In
the meantime, Beijing is trying to jump-start shale development.

In
its second auction for shale gas licenses last month, Beijing
secured 152 bids from 83 companies. And earlier this month, the
Chinese Ministry of Finance announced it was encouraging shale
development by offering subsidies of $2.10 per cubic feet of
production through 2015.

If
barge flow is lessened along the nation's busiest waterway on the
Mississippi River, it could spell economic disaster and that's why
shippers and legislators arepushingPresident
Obama to
declare a federal emergency.

River
vessels are cutting loads on the nation’s busiest waterway while
railroads sign up new business and the U.S. Army Corps of Engineers
draws criticism from lawmakers over its management of the river,
which could be shut to cargo from companies including
Archer-Daniels-Midland Co. (ADM) next month.

“Our
shippers are looking at alternate modes of transportation,” said
Marty Hettel, senior manager of bulk sales for AEP River Operations,
the barge unit of American Electric Power Co. (AEP), a utility owner
based in Columbus, Ohio. “If you’re shipping raw materials to a
steel mill in Chicago, you’re trying to figure out if you can go to
Cincinnati or Louisville, Kentucky, unload it out of the barge and
rail it up to the steel mill.”

The
worst U.S. drought since 1956, which dried farmland from Ohio to
Nebraska, will last at least through February in most areas,
according to the U.S. Climate Prediction Center in College Park,
Maryland. Barges on the Mississippi handle about 60 percent of the
nation’s grain exports entering the Gulf of Mexico through New
Orleans, as well as 22 percent of its petroleum and 20 percent of its
coal.

‘Economic
Catastrophe’’

Barge,
shipping and business organizations including the National
Association of Manufacturers, the U.S. Chamber of Commerce and the
American Petroleum Institute in a letter today urged President Barack
Obama to declare an emergency in the region, calling for “immediate
assistance in averting an economic catastrophe in the heartland” of
the U.S.

Jay
Carney, the White House spokesman, said the administration has sought
drought relief for farmers, and today referred questions about the
request to the Corps of Engineers

Senator
Tom Harkin, an Iowa Democrat, also said Obama must act. “We need
action to increase water flow from the Missouri River into the
Mississippi,” Harkin said in an e-mail. “We also need to take
immediate steps to enable the destruction of rock formations under
the Mississippi River, which will allow navigation with less water.”

Mississippi
water levels may drop to an historic low next month. The waterway is
falling in part because of the U.S. Army Corps of Engineers, which
last week started reducing outflows from the Missouri River as part
of an annual operating plan to ensure regions further north have
adequate water.

Shallow
Water

That
may help make the Mississippi too shallow to navigate by Dec. 10 from
St. Louis south about 180 miles (290 kilometers) to Cairo, Illinois,
where the Mississippi meets the Ohio River, according to the American
Waterways Operators and Waterways Council Inc., a trade group based
in Arlington, Virginia. About $7 billion worth of commodities usually
travel on the Mississippi in December and January, according to the
organization.

“It
is imperative that the Corps review their actions to ensure they
address this problem so it doesn’t impact waterborne commerce,”
said Angela Graves, a spokeswoman for Marathon Petroleum Corp. (MPC),
which operates a fleet of 180 barges and 15 tugboats to ship crude
oil, transportation fuels and petroleum products on waterways, in a
telephone interview.

December
and January are historically the lowest times of year for the rivers
because the fall season is usually dry and tributaries freeze, said
Steve Buan, service coordination hydrologist at the U.S. North
Central River Forecast Center in Chanhassen, Minnesota.

‘Ice
Bite’

“That’s
called the ice bite, the water gets made into ice and it can’t flow
downstream,” Buan said.

The
record low in St. Louis was minus-6.1 feet in January 1940, according
to the National Weather Service. The river was at minus-1.49 feet at
1:30 p.m. on Nov. 26, and may drop to minus-5 or even minus-6 feet as
measured by the river gauge in about two weeks if the weather doesn’t
change and the Army Corps of Engineers drawdown of the Missouri River
takes place as planned, Buan said.

About
8 million tons of grain, coal, steel, petroleum and other goods
travel each month between St. Louis and Cairo, said Hettel, with AEP
River Operations.

Shutting
the river will increase transportation costs for shippers, he said.
They’ll continue to pay full price for barges lightened to meet
narrower depth restrictions. Only a few tugs are capable of operating
with depth restrictions expected in December, he said.

Transport
Options

Decatur,
Illinois-based ADM, the largest U.S. grain processor, is “monitoring
the situation closely and making arrangements for alternative
transportation methods, in case they’re necessary,” said
spokeswoman Jackie Anderson in an e- mail.

Enterprise
Products Partners (EPD) LP is running Mississippi barges partly empty
to cope with shallow water, spokesman Rick Rainey of the
Houston-based pipeline company said yesterday in a telephone
interview. Of its 200-vessel fleet, two barges that when fully loaded
carry about 60,000 barrels, are operating on the Mississippi, Rainey
said.

Rail
shipments to export terminals in the week ending Nov. 14 were up 16
percent from the same period in 2011, according to the U.S.
Department of Agriculture. Meanwhile, Mississippi River barge traffic
south was down 29 percent and northbound shipping declined 8.9
percent from a year ago in the week that ended Nov. 17, according to
the Army Corps of Engineers.

Trains
Gain

Low
water on the Mississippi means that Canadian National Railway Co.,
(CNR) based in Montreal, is “currently handling more business as a
result of the situation while remaining focused on protecting its
existing rail traffic base,” said company spokesman Mark Hallman.

Kansas
City Southern (KSU) is “working with our customers to ensure that
we are in a position to meet any increase in rail demand due to the
reduction in river capacity,” said Bill Galligan, vice president
for investor relations of the Kansas City, Missouri-based company, in
an email.

“It
will definitely be a positive for the rails,” said Lee Klaskow, a
Skillman, New Jersey-based analyst for Bloomberg Industries research.
Still, the changes in shipping costs may cause delays, he said. “It
gets to the question, ‘Is the freight competitive with railroad?’”
he said. “If it’s too expensive to ship, sometimes it makes sense
for whoever’s shipping to wait it out.”

Disaster
Request

Fifteen
U.S. senators, 62 members of the House and the governors Illinois,
Iowa and Missouri wrote the Corps asking it to delay water-reducing
actions and and remove rocks that impede traffic. The Mississippi “is
vital to commerce for agriculture and many other goods,” the
lawmakers, including Senator Dick Durbin of Illinois, that chamber’s
second-ranking Democrat, wrote.

The
Army Corps is following the instructions of Congress that directed
management of the Missouri River, which flows into the Mississippi at
St. Louis, said Bob Anderson, a spokesman for the Army Corps in
Vicksburg, Mississippi.

The
federal Missouri River water-management plan can worsen the
Mississippi’s situation as a result, Anderson said. The
organization is “following the manual,” he said. The letter-
writing lawmakers argue against that, saying their reading of law
provides for more flexibility.

To
mitigate its reduction of Missouri River flow, which started Nov. 23,
the Corps started releasing water from Minnesota and Iowa on the
upper Mississippi on Nov. 20. Still, the Mississippi may reach record
lows, a disruption of traffic that may be unavoidable, he said.

“It’s
not so much river management now as it is the extended drought,” he
said. “We have nothing to work with. It’s gotten to the point
where it’s going to become a problem with navigation.”

The
NZ Commissioner for the environment contends that fracking is safe

Livestock
falling ill in fracking regions

In
the midst of the domestic energy boom, livestock on farms near oil-
and gas-drilling operations nationwide have been quietly falling sick
and dying. While scientists have yet to isolate cause and effect,
many suspect chemicals used in drilling and hydrofracking (or
“fracking”) operations are poisoning animals through the air,
water or soil.

Earlier
this year, Michelle Bamberger, an Ithaca, N.Y., veterinarian, and
Robert Oswald, a professor of molecular medicine at Cornell’s
College of Veterinary Medicine, published the first and only
peer-reviewed report to suggest a link between fracking and illness
in food animals.

The
authors compiled 24 case studies of farmers in six shale-gas states
whose livestock experienced neurological, reproductive and acute
gastrointestinal problems after being exposed — either accidentally
or incidentally — to fracking chemicals in the water or air. The
article, published in “New Solutions: A Journal of Environmental
and Occupational Health,” describes how scores of animals died over
the course of several years. Fracking industry proponents challenged
the study, since the authors neither identified the farmers nor ran
controlled experiments to determine how specific fracking compounds
might affect livestock.

The
death toll is insignificant when measured against the nation’s
livestock population (some 97 million beef cattle go to market each
year), but environmental advocates believe these animals constitute
an early warning.

Exposed
livestock “are making their way into the food system, and it’s
very worrisome to us,” Bamberger said. “They live in areas that
have tested positive for air, water and soil contamination. Some of
these chemicals could appear in milk and meat products made from
these animals.”

In
Louisiana, 17 cows died after an hour’s exposure to spilled
fracking fluid, which is injected miles underground to crack open and
release pockets of natural gas. The most likely cause of death:
respiratory failure.

In
New Mexico, hair testing of sick cattle that grazed near well pads
found petroleum residues in 54 of 56 animals.

In
northern central Pennsylvania, 140 cattle were exposed to fracking
wastewater when an impoundment was breached. Approximately 70 cows
died, and the remainder produced only 11 calves, of which three
survived.

In
western Pennsylvania, an overflowing wastewater pit sent fracking
chemicals into a pond and a pasture where pregnant cows grazed: Half
their calves were born dead. Dairy operators in shale-gas areas of
Colorado, Pennsylvania, West Virginia, and Texas have also reported
the death of goats exposed to fracking chemicals.

Drilling
and fracking a single well requires up to 7 million gallons of water,
plus an additional 400,000 gallons of additives, including
lubricants, biocides, scale- and rust-inhibitors, solvents, foaming
and defoaming agents, emulsifiers and de-emulsifiers, stabilizers and
breakers. At almost every stage of developing and operating an oil or
gas well, chemicals and compounds can be introduced into the
environment.

Cows
lose weight, die

After
drilling began just over the property line of Jacki Schilke’s ranch
in the northwestern corner of North Dakota in 2009, in the heart of
the state’s booming Bakken Shale, cattle began limping, with
swollen legs and infections. Cows quit producing milk for their
calves, they lost from 60 to 80 pounds in a week and their tails
mysteriously dropped off. Eventually, five animals died, according to
Schilke.

Ambient
air testing by a certified environmental consultant detected elevated
levels of benzene, methane, chloroform, butane, propane, toluene and
xylene -- and well testing revealed high levels of sulfates,
chromium, chloride and strontium. Schilke says she moved her herd
upwind and upstream from the nearest drill pad.

Although
her steers currently look healthy, she said, “I won’t sell them
because I don’t know if they’re OK.”

Nor
does anyone else. Energy companies are exempt from key provisions of
environmental laws, which makes it difficult for scientists and
citizens to learn precisely what is in drilling and fracking fluids
or airborne emissions. And without information on the interactions
between these chemicals and pre-existing environmental chemicals,
veterinarians can’t hope to pinpoint an animal’s cause of death.

The
risks to food safety may be even more difficult to parse, since
different plants and animals take up different chemicals through
different pathways.

“There
are a variety of organic compounds, metals and radioactive material
(released in the fracking process) that are of human health concern
when livestock meat or milk is ingested,” said Motoko Mukai, a
veterinary toxicologist at Cornell’s College of Veterinary
Medicine. These “compounds accumulate in the fat and are excreted
into milk. Some compounds are persistent and do not get metabolized
easily.”

Veterinarians
don’t know how long chemicals may remain in animals, farmers aren’t
required to prove their livestock are free of contamination before
middlemen purchase them and the Food Safety Inspection Service of the
U.S. Department of Agriculture isn’t looking for these compounds in
carcasses at slaughterhouses.

Documenting
the scope of the problem is difficult: Scientists lack funding to
study the matter, and rural vets remain silent for fear of
retaliation. Farmers who receive royalty checks from energy companies
are reluctant to complain, and those who have settled with gas
companies following a spill or other accident are forbidden to
disclose information to investigators. Some food producers would
rather not know what’s going on, say ranchers and veterinarians.

“It
takes a long time to build up a herd’s reputation,” said rancher
Dennis Bauste of Trenton Lake, N.D. “I’m gonna sell my calves and
I don’t want them to be labeled as tainted. Besides, I wouldn’t
know what to test for. Until there’s a big wipeout, a major
problem, we’re not gonna hear much about this.”

Fracking
proponents criticize Bamberger and Oswald’s paper as a political,
not a scientific, document. “They used anonymous sources, so no one
can verify what they said,” said Steve Everley, of the industry
lobby group Energy In Depth. The authors didn’t provide a
scientific assessment of impacts -- testing what specific chemicals
might do to cows that ingest them, for example -- so treating their
findings as scientific, he continues, “is laughable at best, and
dangerous for public debate at worst.” Bamberger and Oswald
acknowledge this lack of scientific assessment and blame it on the
dearth of funding for fracking research and on the industry’s use
of nondisclosure agreements.

The
National Cattlemen’s Beef Association, the main lobbying group for
ranchers, takes no position on fracking, but some ranchers are
beginning to speak out. “These are industry-supporting
conservatives, not radicals,” said Amy Mall, a senior policy
analyst with the environmental group, Natural Resources Defense
Council. “They are the experts in their animals’ health, and they
are very concerned.”

Last
March, Christopher Portier, director of the National Center for
Environmental Health at the U.S. Centers for Disease Control and
Prevention, called for studies of oil and gas production’s impact
on food plants and animals. None is currently planned by the federal
government.

As
local food booms, consumers wary

But
consumers intensely interested in where and how their food is grown
aren’t waiting for hard data to tell them their meat or milk is
safe. For them, the perception of pollution is just as bad as the
real thing.

“My
beef sells itself. My farm is pristine. But a restaurant doesn’t
want to visit and see a drill pad on the horizon,” said Ken Jaffe,
who raises grass-fed cattle in upstate New York.

Only
recently has the local foods movement, in regions across the country,
reached a critical mass. But the movement’s lofty ideals could turn
out to be, in shale gas areas, a double-edged sword.

Should
the moratorium on hydrofracking in New York State be lifted, the
16,200-member Park Slope Food Co-op, in Brooklyn, will no longer buy
food from farms anywhere near drilling operations -- a $4 million
loss for upstate producers. The livelihood of organic goat farmer
Steven Cleghorn, who’s surrounded by active wells in Pennsylvania,
is already in jeopardy.

“People
at the farmers market are starting to ask exactly where this food
comes from,” he said.

This
report was produced by the Food & Environment Reporting Network,
an independent investigative journalism non-profit focusing on food,
agriculture, and environmental health. A longer version of this story
appears on TheNation.com.

The
oddly named project will cost up to $100 million, take more than two
years to complete, and can only be built by workers from specific
countries with proper security clearances. Palestinians need not
apply.

When
complete the well-guarded compound will have five levels buried
underground and six additional outbuildings on the above grounds,
within the perimeter. At about 127,000 square feet, the first three
floors will house classrooms, an auditorium, and a laboratory — all
wedged behind shock resistant doors — with radiation protection and
massive security.

Only
one gate will allow workers entrance and exit during the project and
that will be guarded by only Israelis.

As
impressive as the American design features already are, Ada
Karmi-Melamede Architects will decorate the entire site with rocks it
chooses, but are paid for by the contractor, and provide three
outdoor picnic tables.

Pincus
also found this detailed description of the mezuzahs that
will adorn every door in the facility:

These
mezuzas, notes the [US
Army]
Corps, “shall be written in inerasable ink, on . . . uncoated
leather parchment” and be handwritten by a scribe “holding a
written authorization according to Jewish law.” The writing may be
“Ashkenazik or Sepharadik” but “not a mixture” and “must be
uniform.”

Also,
“The Mezuzahs shall be proof-read by a computer at an authorized
institution for Mezuzah inspection, as well as manually proof-read
for the form of the letters by a proof-reader authorized by the Chief
Rabbinate.” The mezuza shall be supplied with an aluminum housing
with holes so it can be connected to the door frame or opening.
Finally, “All Mezuzahs for the facility shall be affixed by the
Base’s Rabbi or his appointed representative and not by the
contractor staff.”

Also
in the $100 million range, Pincus finds the “complex facility
with site development challenges” requiring services that include
“electrical, communication, mechanical/ HVAC [heating,
ventilation, air conditioning] and plumbing” requirements telling;
and along with the fact that the contractor must posses a U.S. or
Israeli Secret Security Clearance, he believes this phase to be a
secure command center.

Pulitzer
Prize winning, Yale grad,
born in 1932 whose worked intelligence and media in D.C. since 1955
closes his piece with these shadowy words.

"Activities
such as entering the island province's waters without permission ...
and engaging in publicity that threatens national security are
illegal," the China Daily said. "If foreign ships or crew
members violate regulations, Hainan police have the right to take
over the ships or their communication systems."

The
aggressive move raises the stakes in Asia's biggest trouble spot,
which includes some of the world's busiest shipping lanes through
which more than half the globe's oil tanker traffic passes.

"That
cannot be," Marine Lt.-Gen. Juancho Sabban, commander
of Filipino military forces in the contested area, told
Reuters. "That's a violation of the international passage
(rights)."

Several
Asian countries claim sovereignty over small islands in the area that
are significant as strategic territorial waters and potentially
exclusive economic zones rich in natural resources and fish.

Dr.
Ely Ratner,
a Fellow at the Center for a New American Security, told BI that
the move is the latest manifestation of China using diplomatic,
economic or military coercion to advance territorial claims in the
South China Sea and the East China Sea.

However,
what's new here is that in other conflicts – such as
the Scarborough Shoal, Sansha
City or
the Senkaku
islands – China
has said it is reacting to provocations from other nations, whereas
in this case there is no claim that it is a reaction.

"It's
unquestionably escalatory and destabilizing,"
Ratner said. "This is a unilateral action by China, and
is the
type of [proactive maneuver] that people have been worrying a lot
about and keeping an eye out for."

Ratner
said "there's no doubt that in the medium term the diplomatic
pushback both within the regional and [from] outside powers is going
to be pretty strong" given the fact that the world economy is
largely dependent on freedom of navigation and freedom of passage
through the South China Sea.

The
U.S. – which has repeatedly emphasized that it has a national
interest in free navigation in the region – has shifted
military resources back
to Asia.

What
makes China's decree difficult to counter is that Beijing is using
non-military and law enforcement agencies (which
makes it appear less threatening than if they used naval ships) and
have not expressed an interest in developing a code of conduct that
would provide nations with a protocol for how to behave around
disputed waters or even an interest in discussing what islands are
disputed.

But
that doesn't mean China will get away with it in the long run.

"This
is not a long-term winning strategy for the Chinese," Ratner
said. "Every time they do something like this, what we see is
both enhanced cooperation among the regional states – and we're
starting to see some of that already – and increased demand for
U.S. presence and diplomatic participation in the region."

The
enhanced U.S. attention has emboldened countries such as the
Philippines and Vietnam to take a tougher stance against Beijing.
Ratner said that the regional nations and the U.S. can speak with one
voice on these issues, "they can provide a diplomatic
counterweight to some of these activities."

Ratner
noted that the U.S. will likely continue to place these types of
incidents in the broader perspective of U.S.-China relations
to communicate the seriousness of the stakes.

"It's
really a questions of how far China is willing to go—they
pass laws like [this] but are they actually willing to get out on the
high seas and start arresting fisherman or whomever thinks they are
in international waters or disputed territory where they have been
fishing or doing their business for centuries?" Ratner said.

"China
is the elephant in the room here and they are the ones that will
ultimately decide if this gets resolved peacefully or not."